Tag: Stanford

I’m reflecting a bit on my time at the Design Thinking Bootcamp at Stanford’s d.school. I plan to follow up this post with my thoughts on the question, “What is design thinking?”

First, I recorded some items on some note cards handed out to us at the end of each day to aid our memory and reduce our many thoughts and experiences down to the essential items of action or questions for further consideration. Here is what I wrote on each card.

Day 1

A key behavior I want to take back to work:

Creating an attitude where failure [of new ideas] and disagreement are acceptable and encouraged

Rejecting the vanity of requiring omniscience before action can be taken

Day 2

Today, we did this:

faced rejection and awkwardness to find complete strangers who were excited to tell us about their experiences and themselves

accepted feedback gracefully as an opportunity to improve our offering and refocus on what problem we’re really solving

A key behavior I want to take back to work:

Stop worrying about surveys, start speaking directly with our users

Focusing on emotions conveyed through story-telling

Emphasize breakthrough solutions, not incremental improvements

A question I still have:

What’s the best way to break the ice with a user?

How to know what experiences matter before the problem is known?

When to abandon an interview versus dig deeper?

How long does this process take to cycle through to a solution?

Day 3

Today, we did this:

Built low-resolution prototypes

Took them into the field and used them as excuses to have conversations with strangers about feelings

Now that I’ve shared some of my daily reflections, I want to make some notes about my overall impressions and reflections of the experience.

As I discussed with one of the coaches at the d.school, I believe we are standing on a “burning platform” in our business due to technological and competitive dynamics and it’s imperative we take these risks seriously by thinking about radically different ways of doing business, up to and including finding a completely different business to compete in. Therefore, I had one over-riding goal in attending the Design Thinking Bootcamp: gain a toolset that would help our organization think about the challenge we face differently than we think about it now, and design a radical solution.

Along with that larger goal came many smaller goals about specific areas of our existing business where we perceive an opportunity to radically innovate.

Going into the program, I thought that the program was going to mostly revolve around these specific business challenges and I would be working, almost one-on-one, with design thinking coaches to learn how to apply design thinking to our challenge. I imagined that what I was primarily gaining was an individual insight that I could hopefully share or train our larger organization on as needed when I went back to base.

I had done some research ahead of time and was aware of some of the things we’d be doing in the course of the program:

going out into the field to do interviews with “users”

working on a design challenge for a sponsoring major corporation

doing team-based thinking games to explore different aspects of design thinking

I was apprehensive (in a “good” way) about the interviewing because it is one thing from my previous operational management experience I liked least or felt least comfortable with– actually talking with our customers. Most of my interactions with customers were defensive in nature, trying to calm down someone we had pissed off through process failure or other failure to live up to their expectations or our commitments. I didn’t have much experience or confidence in just talking to people to try to gather insights about how to make business better in a proactive sense. This was a skillset I very much wanted to gain and was ready to do uncomfortable things to master.

Another thing I was concerned about on a personal level was sustaining my energy throughout the program, especially when considering the suggestion that food might be hard to come by. Some of the early material I received in preparation for the week seemed to imply that meals would be light and limited and we’d often be on our own. The Wolf was concerned for me, and the first question she asked when I checked in after Day 1 was “Are they giving you enough to eat?”

I am happy to report that the experience was much higher touch than I would’ve thought. We were fed ENDLESSLY– breakfast, lunch and dinner with oversupplied snack stations throughout the day and dessert offered at lunch and dinner. The food was high quality and diverse from a local catering operation and the snacks were gourmand. I never went hungry and it was clear the program coordinators put a lot of time and attention into this specific detail, not to mention all the others. “Class sizes” were small, typically 1 coach for 5 team members, plus other support staff and coordinators. We had a group dinner scheduled in San Francisco one night and had nice tour buses to shuttle us back and forth when we went out into the field. Overall, it was an extremely comfortable experience from a material standpoint.

The instructors were amazingly high energy and genuinely interested in their students and their learning. That was actually one of the things that was most challenging for me. Design thinking seems to require a lot of emotional energy, and by the time I got home I was drained. Imagine being super excited about everything for 12 hours a day for 4 days. Imagine sustaining this energy with people you’ve never met (I mean the strangers we interviewed, not just the team members in the program) and conveying the sense that the wacky stories they’re sharing are SUPER exciting and SUPER interesting as you interview them for twenty minutes at a time.

Maybe some people can sustain that for weeks, months or even their entire lives, but I can’t. I crashed when I got home, hard.

On the Monday after my return I was to begin my Post Program Design Project. The idea was that between 8am and 12pm, Monday through Wednesday, I would attempt a small design project from start to finish: Empathize, Define, Ideate, Prototype, Test. There were 2 team calls scheduled for 1 hour at 9am on Tuesday and Wednesday to check in and support one another in creating ideas and processing feedback. Otherwise, in 4 hours each of three days you were expected to interview your own customers/users, define a test user to design for, come up with ideas that might make their life more wonderful, create a crude prototype and then role play using it with more customers/users.

I ended up doing the interviews but found it was a lot more challenging to do when the people in our organization that I asked to assist me weren’t really bought in and didn’t really understand how the approach “works” like the people I had teamed up with at the d.school. The interviews went okay despite that, but when it came to defining, ideating, prototyping, I lost my motivation and decided to “quit” rather than make excuses as to why I couldn’t get my project done.

This is probably the most frustrating part of my experience at the d.school, and the biggest lesson I could learn! It was frustrating for me because they made it quite clear before we left that making excuses and not getting the Post Program work done was for losers– in developing a “bias toward action” it is important to jump right in to trying what you learned in your own business, even if you end up sucking at it or it feels funny. This didn’t seem to give me much room to maneuver once I hit some speed bumps and started wobbling, so I just fell over.

On the other hand, experiencing a painful failure and getting back up on my design thinking bike (as I plan to, anyway) helped me think about the other important principle, which is that failure is okay and is part of learning. I now realize I need to sell what I’ve learned a lot better than I did and can’t assume people will rally around this approach just because the organization sent me off to a training program for a week. I also understand that I CAN do what I thought/think is uncomfortable and speak to real “users”, and I have some confidence in the idea that there are real insights we can gain from that effort if we work diligently and find the right people to design for. My initial failure has been a good reminder of the meta-principle of design thinking, which is that everyone can get better by iterative improvements.

My experience at the d.school was wacky and weird, fun and tiring, engaging and challenging. At one point it felt like being back in kindergarten, making macaroni art and playing make believe as we constructed these goofy prototype scenarios and then played them out with each other, with strangers on the street and for our fellow d.school teammates for feedback and evaluation. In the short time I was there I did not come across any “profound” solutions to burning platform business challenges (my own or others) and I realize I can’t expect that kind of resolution from a week long program or from my amateur tinkering with this new found knowledge. Design thinking isn’t a miraculous process, it’s an innovative process.

I’ve got a bit of travel ahead of me over the next few weeks, so I won’t get an opportunity to “do” much design thinking in the meantime. But it is rooted in my mind now and I am thinking differently than when I left for the training. My plan is to try to identify a lower-difficulty challenge our organization could work on and find a few people who are highly motivated to learn and practice a new approach with me. From there we can further test the principles and hopefully design an implementable solution that will be the tangible evidence of value needed to bring it to a wider organizational audience and signal that it is time to move on to bigger challenges.

I have the privilege of attending the Stanford d.school’s Design Thinking Bootcamp, an opportunity I was turned on to by a friend in the venture capital community. In preparation for the program, attendees were asked to conduct an “Ideation” session at their place of work with other managers and decision-makers in their organization. This is an opportunity to not only get an introduction to the attitudes and tools used in design thinking, but also to begin practicing with these ideas immediately within one’s business as part of the design thinking meta is “a bias toward action.”

Here are some takeaways about thinking creatively and generating ideas in a collaborative environment that I’ve gained so far:

Adopt a “Yes, and…” Attitude

First generate, then evaluate

Don’t just find one idea

Think in terms of a specific problem

Focus on emotions

Use constraints to increase idea volume

Use analogous thinking to go some place else

Use “QBD” to evaluate ideas

Think about the “headline”, not the “article”

If it doesn’t get written down, it didn’t happen

More details on each of these ideas, and impressions from my actual ideation sessions, follow:

Adopt a “Yes, and…” Attitude

When people come together to create ideas, they have a habit of seeking to find what is wrong with their collaborators thinking, rather than what is right. The goal in design thinking is to first come up with a lot of ideas, not to find the “right” idea as quickly as possible. A helpful attitude to adopt is “Yes, and…” which means, whenever your collaborators come up with an idea, reply “Yes, and…” and then build off of their idea, either with an additional flourish or iteration, or with another idea you have in mind that their idea has led you to think. Don’t try to make yourself look smart, try to make your partners look brilliant.

First generate, then evaluate

Another intuitive habit most people bring with them to creative sessions is to try to evaluate ideas as fast as they’re generated. No sooner does someone have a new idea than does that person, or a collaborator, try to figure out if the idea “fits” with the constraints of the project. Many ideas that are either excellent on their own, or could lead to an excellent and realizable idea, are tossed out in the instant evaluation before they’ve had a chance to make an impact. Get in the habit of separating the generation of ideas and the thinking through the merits of the ideas generated. Never confuse the two or allow the processes to mingle in your thoughts or practice.

Don’t just find one idea

When you’ve got a problem, you only need ONE solution. And ultimately, you can only implement one solution– time, resources, etc. are scarce. So it’s easy to think the goal is to “just come up with one idea.” But trying to find the right idea means evaluating as you generate, and it also means pre-qualifying your own thinking before you even generate ideas. Your goal in ideation is actually to generate as many ideas as you can, regardless of whether they make sense, actually solve your problem, are feasible, etc. Go for quantity, not quality, when generating ideas.

Think in terms of a specific problem

It helps to come up with ideas when your problem is specific enough to be solved by an idea you come up with. This means thinking in terms of a specific group of people and in terms of a specific change you want to bring about, either an action or a state of mind. A prompt that can help is to frame your problem with this ad lib– “What can we create for… [specific group of people] that makes them/that helps them [choose one] … [a physical action you want them to take, or a state of mind you want them to adopt]?” An example would be, “What can we create for 10 to 12 year old kids that makes them excited to eat vegetables?” The problem is specific– it is about 10 to 12 year old kids, a group of people with distinct qualities. And what the solution provides is also specific– it will generate a feeling of excitement in them in relation to their eating vegetables.

Focus on emotions

You’ve got your problem. It’s important to think of the mental state of the “user” you’re solving for. Almost inevitably, finding a solution will involve focusing on the change in the mental state that is necessary to motivate action. Sometimes, the change in the mental state by itself is the goal, for example, “What can we create for customers who are angry with us that will make them love us and tell all their friends?” Translating the problem during the ideation process into an emotional state creates a valuable constraint (discussed below) for increasing idea volume.

Use constraints to increase idea volume

It is counterintuitive, but putting constraints on your idea process actually allows you to be even more creative because it focuses the mind in specific ways. Some constraints used as examples in the ideation workshop were “Every idea must cost $1 million” or “Every idea must get you in trouble with your boss”. Imagine you actually have a budget constraint– you only have $50,000 to spend on a solution. Coming with the REAL budget as a constraint is likely to limit your thinking because you’ll immediately begin pre-qualifying and evaluating ideas as you try to generate them.

But if you invert the real constraint into an imaginary one where you must SPEND a large sum of money on your idea as a minimum, you will end up with a sense of much more freedom. Later, you can take those high dollar ideas and figure out how to reduce the cost to something that is actually affordable. The inversion process allows you to hurdle over your real constraint which would limit your creativity and therefore your ability to find a real solution.

You could think of arbitrary constraints, simply to inspire creative and offbeat thinking, or you could try inverting real constraints to trick yourself into thinking past them. The d.school profs use the metaphor of the thumb over the garden hose, which forces high pressure jets of water to spray over a larger area versus just using the innate pressure of the hose which tends to dribble out.

Use analogous thinking to go some place else

Another tool for successful ideation is to create analogous situations and imagine how those people or institutions would handle the creation of a solution for your problem. To find analogies, you translate your problem into the emotional state, mentioned earlier. Sometimes it’s easy and obvious, because you already have an emotional change as a condition of your solution. But if you don’t, this can take some creativity in and of itself to figure out what the emotion is you’re searching for. As an example, if your problem was “What can we create for our hiring department that helps them to only hire people who exceed our standards?” the emotional state might be “confidence.”

Once you have your emotional state, you must ask yourself, “What kind of person, group or place is superb at generating this kind of emotion?” Once you have a list of such entities that excel at generating this emotion, you can do an iterative process of asking yourself, “What would X create for… that helps them/that makes them…?”

Now you are in someone else’s shoes, thinking about the world the way they do and you have unlocked an entirely different form of creativity from your own.

Use “QBD” to evaluate ideas

Okay, you’ve got a ton of ideas at this point. Now it’s (finally) time to evaluate them. But you’re not just going to start deciding which are possible and which are insane. Instead, you’re going to use more creativity to evaluate your ideas. You’re going to think about which ideas are Quick, Breakthrough or Delightful.

Quick ideas may not be full or perfect solutions, but they could be reasonably implemented right away and this incremental progress would have an immediate impact– things would get better as far as your problem is concerned. This is an important way of thinking about selecting solutions because often no solution is found in search of a holistic or perfect one, which either doesn’t exist or can’t be accessed in a linear way of thinking. By selecting a Quick solution, you can take steps toward what might be a final, perfect solution and get a win in the meantime.

Breakthrough ideas might not work, but if they did, they’d be a game changer. They’d be an all new way of solving the problem, or they’d give the group who employs them a distinct competitive advantage, or greatly leverage their efforts. Breakthrough ideas help us think about how to shift paradigms and find solutions that don’t just work, but work insanely well.

Delightful ideas are just that– if we implement them, people feel GREAT. And feeling great is an important part of solving problems and making progress in our work or business. When we find Delightful ideas, we find ways to inspire, motivate and energize people that can lead to other creativity or effectiveness that we can’t imagine or anticipate in simply solving the problem.

Think about the “headline”, not the “article”

When generating and sharing ideas, it’s important to think and communicate in terms of the big impact, high level concept of the idea and not get bogged down in the nitty gritty details– that way lies the habit of criticizing, condemning and evaluating before a good idea can take root, or inspire another. The instructors refer to this as thinking about the “headline” and not the “article.” An example would be, “Hire an expert interviewer” versus “Find a person with X years of experience interviewing people, pay them $Y per year, assign them duties of A, B and C, they will report to Z and will be measured in their performance by E, F and G.” You can find any number of things in the article version that might be unrealistic or impractical, if you can even come up with all the necessary details. It is putting the cart before the horse. You first have to come up with the big idea and see how it could lead to a Quick, Breakthrough or Delightful improvement for your problem, and then you can go about fleshing it out and figuring out how to make it practically work.

If it doesn’t get written down, it didn’t happen

This idea is a good practice for any meeting or information-sharing activity of any kind but it seems to be especially relevant to the process of ideation– if you aren’t writing ideas down as you’re coming up with them, they may as well not exist. By the end of a 1hr long ideation session, you might have come up with fifty or sixty different ideas and concepts as a team. Who can remember what those were by the end of it? So it is important to write them down as you go. The instructors recommend using sticky notes and slapping them on the wall as you go, which not only serves to keep things written down and makes it easy to move ideas around as you review and ideate, but the small amount of space necessarily forces one to think in “headline” terms.

Another thing that should be written down, repeatedly, is the prompt of the problem you are trying to solve (“What can we create for…?”) as well as the specific constraints, analogies, etc., that you are bringing to bear on them as you focus your ideation in different ways.

Our experience with ideation as a team

My ideation workshop involved 5 other people in our organization in addition to myself, all group managers or individuals with lead authority at the operating unit level. We split up into 2 teams of three to work through our ideation process.

One takeaway is that collaborative idea generation is FUN. We genuinely had a good time working together to come up with solutions to our organization’s problems. There was a lot of laughter, spirited talking and debate and enthusiasm. Often times a team would race ahead with a prompt or keep working after designated time was up because they were so caught up in their thinking and idea generation.

Another takeaway is that anyone can be creative. Most of the operating managers were selected because they tend to experiment and try new things in their operations, but what really makes them excellent in their roles is that they relentlessly stick to a proven system of processes and procedures. There may have been some fear that people who are really good enforcing a set of orders might not be able to come up with creative new ideas. This just wasn’t the case. They all had a ton of ideas and I think one thing that was clear by the end of the session was that everyone would’ve liked to have selected their individual problem they brought to the group for ideation work when we could only pick one at a time.

A third takeaway is that the trail one follows to arrive at workable solutions often starts in an unpredictable and highly abstract place. It highlighted for us the value of every idea generated, and the importance of separating generation from evaluation. Where you start is rarely where you will end and if you can embrace the idea of accepting all ideas as valuable and disregarding their merit or feasibility at the outset, you can let those ideas unlock all kinds of interesting solutions you otherwise may not have accessed.

Finally, we realized that even when we came up with an idea that we thought was Breakthrough or Delightful, but lacked obvious practical application, we could begin “trimming” and paring down the idea from there to find something we COULD do with it that still tapped into the essence or principle of the original idea. For example, one group came up with the idea of hiring a professional athlete to be a motivational coach to our organization’s managers. We don’t have the budget for that, nor is that athlete necessarily available for hire, but we can think about what kind of qualities we believe he would bring to such a role and look for a person we could hire that can bring those qualities, or the way we could change processes or definitions of roles within the organization to incorporate those values we now realize are essential to helping us solve a known problem. I think of this as “analogizing from the analogy”.

I can see how the ideation process, which we are just being introduced to through this practice work, can add value for all people at all levels of responsibility within our organization. It is inspiring and motivating, it creates the “bias towards action” in the person doing it and it yields real results which can actually make things better for us, our customers and our team. I am sold!

Highest quality deals are found outside broker network/open market due to lack of auction dynamics

Research shows that partnerships are more likely to complete an acquisition and have a successful outcome than solo searchers (71% yielded positive return, 15 of top 20 performing funds were partnerships)

Principals budget a salary of $80,000-120,000 per year w/ median amount raised per principal $300,000~

Majority of the economic benefit of SF comes through principal’s earned equity; entrepreneur/partners receive 15-30% equity stake in acquired company in three tranches

Individual IRR from 2003-2011 median was not meaningful, heavily skewed toward 75th percentile where median was 26% in 2011; 57% of individual IRRs were not meaningful in 2011; the median fund destroyed capital in 2009 (0.5x) and 2011 (0.8x); 58% in 2011 broke even or lost money

Half of the funds that represent a total or partial loss were funds that did not acquire a company; biggest risk is in not acquiring a company at all

Median acquisition multiples: 1.1x revenues; 5.1x EBITDA

Median deal size, $8.5M

“Raising a Fund”

Search fund capital should come from investors with the ability and willingness to participate in the acquisition round of capital raising

“Search Fund Economics”

Search fund investors often participate at a stepped up rate of 150% of original investment in acquired company securities

“Setting Criteria and Evaluating Industries”

Desirable characteristics for a target industry: fragmented, growing, sizable in terms of revenues and number of companies, straightforward operations, early in industry lifecycle, high number of companies in target size range

Objective is to pare down the industry target list to 5-10 most promising

Basic industry analysis (Porter’s five forces, etc.) is then used to narrow from 10 to 3; SFers use public equity research and annual reports for market size, growth, margin benchmarks; also Capital IQ, Hoover’s, Dun & Bradstreet and One Source

Industry insiders (business owners, trade association members, sales or business development professionals) and industry trade associations or affiliated ibanks and advisory firms are primary methods of research and often have general industry research or white papers available

Next step is to create a thesis to codify accumulated knowledge and compare opportunities across common metric set in order to make go/no-go decision

In order to become an industry insider, SFers typically attend tradeshows, meet with business owners, interview customers and suppliers and develop “River Guides”

Bring up financial criteria and valuation ranges as early as possible when speaking to potential acquisition targets to save everyone time

A company that is too large or too small as an acquisition target may still be worth talking to for information

You must immediately sound useful, credible or relevant to the owner; deep industry analysis should already have been performed at this stage

Tradeshows can be a critical source of dealflow

If a particular owner is not willing to sell, ask if he knows others who are

“River Guides” are typically compensated with a deal success fee, usually .5-1% of total deal size

Boutique investment banks, accounting firms and legal practices specializing in the industry in question are also a good source of deals

The business broker community itself is extremely large and fragmented; could be a good rollup target?

Often, brokered deals are only shown if a private equity investor with committed capital has already passed on the deal, presenting an adverse selection problem

Involve your financing sources (such as lenders and investors) early in the deal process to ensure their commitment and familiarity

“Evaluating Target Businesses”

Principles of time management: clarify goals of each stage of evaluation and structure work to meet those goals; recognize that perfect information is an unrealistic goal; keep a list of prioritized items impacting the go/no-go decision

Stages: first pass, valuation/LOI, comprehensive due diligence

It is in the best interest of the SFer to tackle core business issues personally during due diligence as it is the best way to learn the details of the business being taken over

Adding back the expenses of a failed product launch rewards the seller for a bad business decision; adding back growth expenses gives the seller the double benefit of capturing the growth without reflecting its true cost

Due diligence may also uncover deductions to EBITDA or unrealized expenses that reduce the “normalized” level of earnings (undermarket rents, inadequate insurance coverage, costs to upgrade existing systems, etc.)

“Transitioning Ownership and Management”

Create a detailed “Transition Services Agreement” with the seller, a legal contract where specific roles, responsibilities, defined time commitments and compensation are agreed prior to the transaction close

The first 100 days should be dedicated to learning the business

Businesses consist of people, and people need communication; great leaders are always great communicators

“Don’t listen to complaints about your predecessor, this can lead to a swamp and you don’t want to be mired there.”

The goal is to learn, not to make immediate changes

Outwork everyone; be the first person in and the last to leave

Many SFers insert themselves into the cash management process during the transition period by reviewing daily sales, invoices and receipts and signing every check/payment made by the company

The company’s board should be a mix of deep operational experience, specific industry or business model experience and financial expertise

The seeds of destruction for new senior leaders are often sown in the first 100 days